The five star Fidelity Select Biotech Portfolio (FBIOX) pretty much tracks the IBB up 11.66% YTD and down (8.52) for one month. Three relatively new top ten mid-cap holdings of Fidelity are ANAC,INCY and RDUS. For investors looking for adding to their biotech portfolios the complementary positions would be FBIOX and XBI.

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Update-1 Another VeXXing Volatile Week

Stocks were in free fall for most of today 9/4 and tried to rally in the last 30 min before a little whack at the end with the NASDAQ down 1.05% for the day. Many biotech stocks came back and the XBI was actually up 0.24% for the day (see chart below) at 218.67. Other biotech ETFs were also close to the flatline today. Here are the results for all major ETFs for the week:

FBT down 3.76%, IBB down 4.37%, XBI down 4.53%

Pundits on CNBC were chatting about shorting biotech but if you look at all the ETFs and funds you can see that the sector has already taken a beating since mid-July. For example the less volatile FBT is about 16% off July highs but still up 9.25% YTD. So maybe those “shorts” are talking their book with CNBC or thinking that because the biotech sector is still green it needs to correct even more. The main concern about the sector is that the healthcare sector leadership is gone. The normally staid Healthcare SPDR ETF the XLV is also down 4.35% for the week and flat for the year.

Nonetheless there were a surprising number of green stocks today and among our picks:

ALKS up 2.83%, CLVS up 3.35 %, FCSC up 3.44%, GILD up 0.83%, RXDX up 6.87%, SGEN up 2.65%.

With the positive tape action today we can hope for a rally in small and mid-caps next week.

Biotech stocks were previously immune to volatility from macro events in Europe and China. Now fears from a broad emerging market downturn has curbed risk across the board spilling into the healthcare sector. It is too early to tell whether there are other issues with the healthcare sector such as pricing, patent policies, generics, valuations, the FED etc. But the volatility even with blue chip growth stocks has unnerved investors.

Biotech stocks could not extend last week’s rally from August lows and were down again today as we begin a new month. A red screen overwhelmed today and all biotech ETFs were down another 2.75-3% extending the 12% losses from August. The biotech sector peaked in mid-July with almost a “blow-off” top when the XBI hit the 273 level up over 45% YTD! The sector then fell into long slide through the summer until the brief rally last week. Many momentum stocks were pummeled as major funds took profits and a lackluster summer trading pattern set in. Here are some market trends in biotech stocks to consider as we position for a year-end rally:

Healthcare stocks no longer lead the market and many large cap biopharmaceutical stocks are primary holdings of funds and ETFs. A weak healthcare sector does not bode well for biotech.

Speculation in small and mid-cap stocks has waned particularly emerging companies in “immuno-oncology” most of which are down today: BLUE CLDX JUNO KITE etc. There is only one green stock today in our universe Clovis Oncology (CLVS).

Large caps are no longer a safer play with Biogen (BIIB) down 12.67 % YTD and Amgen (AMGN) down 6.6% YTD. Gilead Sciences (GILD) is still up 8.7% YTD. Regeneron Pharma (REGN) up 21% YTD.

Mid-caps have been the best performers because of revenue growth and and M&A potential: Clovis Oncology (CLVS), Incyte (INCY) and Vertex Pharmaceuticals (VRTX).

As can be seen in the chart below all major Biotechnology ETFs took a big hit in August and overall performance in 2015 has trended together although the XBI remains the leader despite its more speculative holdings. Add another 2.5-3% for losses today.

We will provide more color on detailed holdings and ETF strategies in our next update. ETFs outperformed mutual funds over the past year. A good investing approach is to hold one ETF and one Biotech Mutual Fund.

Volatility on a week to week basis has become difficult for any kind of trade except raising cash until a longer term trend becomes apparent. Dividend plays in large cap pharma might make sense but healthcare leadership in the market needs to assert itself.

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About Raynovich Rod

Rod Raynovich is an experienced biotech investor and analyst with a focus in vaccines, tools, IVD’s and biopharmaceuticals. Prior to starting Raygent.com, he was a former technology transfer office at UCLA and he has held various executive positions in the biotech and medical device industry, including senior positions at NASDAQ listed biomedical companies. Prior to that Mr.Raynovich held management positions at Abbott, JNJ and Technicon.

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Rod Raynovich is the founder of Raygent Associates, a management consulting firm providing business development and strategic marketing services in the life science and medical device area. He publishes his thoughts and analysis on the biotech industry at www.raygent.com.